Tariffs Will Cost This Detroit Automaker Billions More Than Its Rival

By now, most investors are likely aware of all the chatter surrounding the Trump administration's economic policies, including its tariff plans. It's a huge deal, and it could significantly impact automakers and their investors. These are massive companies with complicated supply chains that will need time to adjust to the rapid developments now underway.

When it comes to U.S. auto company investors, the big question most want answered right now involves the potential impact on these companies' bottom line. So let's take a quick look at the type of impact the tariffs could have, and why General Motors (NYSE: GM) could be hit far harder than crosstown rival Ford Motor Company (NYSE: F).

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What happened with auto-related tariffs?

The Trump administration enacted a 25% tariff on April 3 on any vehicle not assembled in the U.S. President Donald Trump has said he also plans to place tariffs on some auto parts (including engines and transmissions), but those won't take effect until May 3. These moves could certainly threaten the automotive sector's profitability in the near term. Reciprocal tariffs that vary from country to country are likely to be enacted in response. Automakers had lobbied for vehicles and parts that are compliant with the United States-Mexico-Canada trade agreement to be tariff-free, but so far there have been no exemptions made.

General Motors shares dipped Thursday morning, along with much of the industry, on the news. GM CEO Mary Barra previously noted to investors that the company was working on multiple strategies to offset potential tariffs, but the Detroit automaker could stand to be the most impacted among its domestic peers.

The automotive industry's supply chain is complicated with parts crossing the borders between Canada, Mexico, and the U.S., sometimes multiple times, before being fully assembled. While the majority of Ford and General Motors cars sold in the U.S. are assembled domestically, only roughly one-third of the parts are sourced from domestic suppliers.

J.P. Morgan analyst Ryan Brinkman told investors this week that the tariff could cost General Motors as much as $14 billion, which is equivalent to nearly its full-year 2024 earnings. That is a huge, huge, development for investors, especially considering the analyst estimated Ford's impact could be less than half that at about $6 billion.

"We estimate GM imports ~$56 billion of vehicles annually from Mexico and Canada, which after adjusting for content originating in the U.S. may amount to ~$38 billion -- subject to a ~$10 billion tariff under a 25% rate," Brinkman and his team said. "For parts, we estimate GM's share of the ~$92 billion imported by the industry may be ~$4 billion, implying a total tariff exposure of ~$14 billion before coping mechanisms."

What about the stock?

It's not always easy to predict how the market will react to such data, but it's clear Wall Street isn't looking at this development fondly. In fact, the J.P. Morgan analyst lowered GM's price target from $64 per share to $53 (the stock was trading at $46.42 Thursday morning). He also slashed a smaller $2 chunk off Ford, leaving his price target at $11 per share (it traded at $9.82 Thursday morning).

The good news is that many are still holding out hope that these drastic measures and tariffs are simply a form of negotiation, and could be changed or ended just as quickly. But that's a risk at the moment because the administration is more unpredictable than the industry is accustomed to.

The best advice investors can take is to ignore the drama surrounding the tariffs, and simply focus on owning excellent companies. Eventually, the tariffs will end, subside, change, or the automakers will gradually offset them through strategies that are currently being developed. And while the tariffs could impact GM substantially more than Ford, the former has a ton of momentum when it comes to electric vehicles and sales of highly profitable trucks and SUVs, and it has returned tens of billions of dollars in value to shareholders through massive buybacks in recent years.

GM is still an automaker worth owning if you believe in the company's core business, regardless of the surrounding tariff drama.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.